Thursday, October 11, 2012

Quant is under the weather this morning and unable to convey its
daily message, it is being attended to and we hope and expect a quick
recuperation.

We’ll use its absence to
highlight another ETF Global feature, the ETP Liquidation Watch List. This is where we try to keep you out of
troubled funds that may close, sometimes with troubling consequences such as an
inability to redeem shares at NAV. We have found a confluence of circumstances that
can lead to such an event. First, it rarely
happens within a fund’s first two years of existence so we screen out all of
those newer funds that haven’t had time to prove themselves to the market and
their sponsors. Next, we look at funds with less than $5 million in assets under management, that
threshold usually makes it difficult to run the administrative functions necessary
to operate and market an Exchange Traded Product. Third and most importantly, we screen for all
those funds that have negative fund flows for the trailing twelve months as that
tends to be the final straw for a sponsor to pull the plug on a disappointing
fund. Some funds close without meeting
these three criteria and some that meet all three remain open so inclusion is not a sure thing but a warning to check before building a new position. We compile it monthly and you can see
October’s list from the Liquidation Watch List link under the Risk Analytics
button. October’s list has 51 names on
it and not surprisingly, they tend to be populated among the higher risk scores. The average Risk Rating of the funds on this
month’s list is 6.51, higher than most of Quant’s top rankers and skewed down
by 5 currency funds that tend to have lower price risk as currencies don’t move
like other asset classes. Taking out
those 5, the average rises to 6.73. Those 5 currency funds have a Risk Rating
below 5 and 8 more have Risk Ratings below 6, leaving 38 funds with a Risk Rating
above 6 Red Diamonds. If you are not
swinging for the fences you probably won’t find any of your positions on this
list but if you have some aggressive inclinations or are considering a narrow
niche product, check out the ETFG Liquidation Watch List before putting on your
trade.

As for Quant, check its page before the open, we hope to have it
out of bed and working by then.